PAS 26 – Accounting and Reporting by

Retirement Benefit Plans

PAS 26 – Accounting and Reporting by
Retirement Benefit Plans
PAS 26 – Accounting and Reporting by
Retirement Benefit Plans
PAS 26 – Accounting and Reporting by
Retirement Benefit Plans
No price Method: free
 PAS 26 – Accounting and Reporting by Retirement Benefit Plans
 Views a retirement benefit plan as a reporting entity separate from the employers of the
participants in the plan
 Applies to ALL retirement benefit plans whether formal or informal, contributory or non-
contributory, funded or unfunded, and defined contribution plan or defined benefit plan
 Does not apply to government social security type arrangements and employee benefits
 Hybrid plans (have characteristics of both a defined contribution plan and defined benefit plan)
– considered defined benefit plans
Retirement benefit plans
 Pension schemes/superannuation schemes/retirement benefit schemes
Funding – transfer of assets to an entity (the fund) separate from the employer’s entity to meet future
obligations for the payment of retirement benefits
Net assets available for benefits – assets of a plan less liabilities other than the actuarial present
value of promised retirement benefits
Vested benefits – benefits, the rights to which, under the conditions of a retirement benefit plan, are
not conditional on continued employment
 Is already in the employee’s whether he continues or discontinues his employment
Actuarial present value of promised retirement benefits – present value of the expected payments by
a retirement benefit plan to existing and past employees, attributable to the service already rendered
Present value of the retirement benefits may be calculated either:
a. Current salary levels; or
b. Projected salary levels at the retirement dates
Actuarial valuations – prepared every three years
 If an actuarial valuation has not been prepared at the date of the FSs, latest actuarial valuation
is used as the basis
Plan assets – measured at fair value/market value
Securities with fixed redemption values that have been acquired to match the obligations of the plan –
measured at theirfinal redemption values
Disclosure
1) Summary of significant accounting policies
2) Description of the plan and the effect of any changes in the plan during the period
3) Details of any single investment exceeding 5% of net assets or 5% of any category of
investment
4) Details of any investment in the employer
5) Contributions of employer and employee
6) Analysis of benefits paid or payable according to retirement, death and disability benefits, and
lump sum payments
7) Funding policies and investment policies (for defined contribution plan)
8) Investment income on plan assets
 9) Administrative, tax, other exp
10)Transfers from or to other plans
11) Actuarial present value of promised retirement benefits, information on significant actuarial
assumptions, methods used, number of plan participants, description of the promised benefits,
names of the employers and the employee groups covered (for defined benefit plans)
PAS 27 SEPARATE FINANCIAL STATEMENTS
NATURE
PAS 27 prescribes the accounting and disclosure requirements for statements in
subsidiaries, associates and joint ventures when an entity prepares separate financial statements.
PAS 27 does not mandate which entities should produce separate financial statements. PAS 27 is
applied when an entity chooses, or is required by law, to present separate financial statements that
comply with PFRSs.
Separate financial statements are those presented in addition to:
1) Consolidated financial statements; or
2) The financial statements of an entity with an investment in associate or joint venture that is
accounted for using equity method in accordance with PAS 28Investments in Associates and
Joint Ventures.
RECOGNITION
Dividends from a subsidiary, associate or joint venture are recognized in profit or loss when the
entity’s right to receive the dividends is established, except when the investment is
accounted for using the equity method, in which case the dividends are recognized as deduction to
the carrying amount of the investment.
MEASUREMENT
If the investments are measured at fair value through profit or loss in non-separate financial
statements, that same measurement is also used in the separate financial statements.
PRESENTATION
Separate financial statements are prepared in accordance with all applicable PFRSs, except that
investments in subsidiaries, associates or joint ventures are accounted for either:
1) At cost,
2) In accordance with PFRS 9 Financial Instruments, or Using the equity method under PAS 28
Investments in Associates
PAS 28 – Investment in Associate and Joint Venture
Definition of terms
An associate is an entity over which the investor has significant influence.
The equity method is a method of accounting whereby the investment is initially recognized at cost
and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net
assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s
other comprehensive income includes its share of the investee’s other comprehensive income.
A joint arrangement is an arrangement of which two or more parties have joint control.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties sharing
control.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
Significant influence is the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control of those policies.
Objective and scope
 To prescribe an accounting for associate
 To set out requirements for the application of equity method when accounting for investments
in associates and joint ventures
 This Standard shall be applied by all entities that are investors with joint control of, or
significant influence over, an investee.
Associate – An investment on which an entity has significant influence
What is significant influence?
 A power to participate in the financial and operating policy decision of the investee (associate)
but is NOT control or join control of these policies
 Holding directly or indirectly of more than 20% - 50% of the voting power over the investee
Note: The percent of ownership is not a decisive factor.
“There are many cases where an investor held 20% of voting power did not exercise anything or
participated.” –sir
Conversely, there are more things to consider before we can make a conclusion about the existence
of significant influence
 The investor has its representation in Board of Directors or any similar managing bodies.
 The investor participates in the policy making processes, including participation in decisions
about dividends or other distributions
 There is an interchange in managerial personnel between investor and investment or investee
 There is a material transaction the entity and its investee
Other than the significant influence the PAS 28 requires:
 An entity with Joint control, as defined by PFRS 11 Joint Arrangements, or Significant Influence
in an investee shall account for its investment in associate and joint venture using the EQUITY
METHOD
Equity Method
 On acquisition date or on initial recognition investor needs to recognize its investment in an
associate or joint venture at Cost.
 After the acquisition date for investor’s share on investee’s P/L, for example, investor
increases or decreases the carrying amount of its investment by its share of the associate’s
 profit or loss after the acquisition. The investor’s share of the investee’s profit or loss is
recognized in the investor’s profit or loss
 When there are some distributions from an associate or joint venture to investor i.e., dividends
then the investor basically reduces the carrying amount of its investment by the amount
received
Application of Equity Method
 An Investment is accounted for using the equity method from the date in which it becomes an
associate or joint venture.
Adjustments
 Some appropriate adjustments to the entity’s share of the associate’s or joint venture’s profit or
loss after acquisition are made in order to account, for example, for depreciation of the
depreciable assets based on their fair values at the acquisition date. Similarly, appropriate
adjustments to the entity’s share of the associate’s or joint venture’s profit or loss after
acquisition are made for impairment losses such as for goodwill or property, plant and
equipment.